BMW finds buyer for Rover

May 9, 2000

Purchase will save thousands of U.K. jobs; BMW future control still in doubt
May 09, 2000: 11:32 a.m. ET

LONDON (CNNfn) - BMW agreed Tuesday to sell its money-losing Rover
unit to U.K. investment firm Phoenix in a deal that will save thousands of
British jobs, while analysts said uncertainty remains over the German
automaker's future ownership.

The Munich-based company said it will lend Phoenix £500 million ($766
million) to take over production and distribution of Rover cars, thus providing
it with start-up support as the buyer restructures Rover. It said Phoenix, a
venture capital consortium led by the U.K. car unit's former chief executive,
John Towers, will pay a symbolic purchase price of £10 ($15.36). The
companies would not provide further financial details of the deal.

Phoenix plans to maintain production of the Rover 25, 45 and 75 models
and is buying the MG sports car and the popular Mini small-car names,
though it said there will be some 1,000 job cuts. BMW will retain owner-
ship of the Rover brand name, although Phoenix will be able to use the
badge under a licensing deal.

Analysts welcomed the agreement, which removes the threat that BMW
would have to take the politically unpopular step of closing Rover. Two
weeks ago Alchemy Partners, then the leading candidate to buy the unit,
pulled out of negotiations. BMW had warned it would shut down Rover if
it didn't find a buyer by the end of May.

"BMW has lost something like $6 billion since they acquired Rover, and
they are getting rid of something that has been losing $2 million a day
and been a specific problem in terms of the drag on management time,
" Richard Baldwin, an auto analyst at Chase Securities in London, told
CNNfn.com.

BMW said it would book a 3.2 billion charge for the sale of Rover, though
Baldwin noted that this would be offset by the $2.9 billion Ford Motor Co.
(F: Research, Estimates) agreed to pay to buy its Land Rover unit, a maker
of sport/utility vehicles.

"BMW will now be able to turn its attention back to its core brands," Baldwin
added. He said, though, that the company's future as an independent
company remains clouded by whether or not the Quandt family, which
has effective control of BMW, chooses to sell its shares.

Speculation has surrounded the Quandts' future role for months, with General
Motors (GM: Research, Estimates) tipped as a favorite to buy BMW should
they decide to sell. Baldwin said BMW would make a good fit for GM, which
lags Ford, the owner of the British Jaguar and Aston Martin makes, in the
field of luxury cars.

BMW ownership at stake

BMW and Phoenix had been locked in talks since the collapse of the Alchemy
bid. Phoenix Monday secured vital financial backing from a unit of North Carolina-
based First Union Ê(FTU: Research, Estimates).

BMW (FBMW) shares rose 2 percent in Frankfurt to 33.91 in late afternoon trading.

BMW's attempts to find a way to withdraw from the Rover business by either
selling or closing it had stirred up a political controversy between Britain and
Germany. The closure of Rover, which BMW bought in 1994, would have
directly caused the loss of 9,000 jobs at its main Longbridge factory, while
about 40,000 jobs in companies supplying parts and services to Rover also
were expected to go.

"After intense negotiations, we have managed to find a buyer for Rover
whose aim is to continue to run Rover and who will therefore prevent the
loss of thousands of jobs in the Rover plant in Birmingham, in the supplier
industry and in the retail business," BMW Chief Executive Joachim Milberg
said.

The rival Alchemy proposal would have drastically slimmed down Rover.
Industry observers had tipped Phoenix as the best commercial bet, maintaining
Rover as a mass-market producer.

Peter Schmidt, an analyst at consultant Automotive Industry Data, said he
believes Rover could reclaim a 10 percent share of the U.K. market, having
slipped to just 5 percent last year.

Phoenix plans to maintain production at Rover's main assembly line at around
200,000 cars a year. Phoenix chief Towers told a news conference the first
priority is to stabilize the business and noted that the acquisition includes
Rover's spare parts business, which is important in terms of cash flow.

The deal with BMW gives Phoenix options to buy the Powertrain and Swindon
assets. Powertrain makes transmissions and engines and Swindon operates a
stamping plant.

Towers said Phoenix has a chief executive in mind for Rover but declined to identify
his preferred candidate. Towers declined to comment on the financial arrangements
of its deal with BMW.